The Heritage Insider: When does executive discretion become changing the law? rational ignorance and mendacious reporting, the administration's subsidy story doesn't fit, and more

November 22, 2014

Latest Studies
51 new items, including an Institute for Policy Innovation report on how two states cut Medicaid and saved money, and a school report card from the Mackinac Center

Notes on the Week
When does executive discretion become changing the law? rational ignorance and mendacious reporting, the administration's subsidy story doesn't fit

Latest Studies

Budget & Taxation
• Reviewing the Financial Health of the FHA – American Action Forum
• America Can Afford Tax Rate Cuts to Boost Growth, Wages, and Employment – American Enterprise Institute
• Public-Sector Unions and Government Policy – Mercatus Center
• The Seven Lean Years: The Economic and Fiscal Consequences from California’s Proposition 30 – Pacific Research Institute
• Tulsa Pension System Is Underestimating Its Debt and Investment Risk by Millions – Reason Foundation
• The New Proposed TIF Project in Sikeston – Show-Me Institute
• Busting Texas’ 2014-15 Spending Limit – Texas Public Policy Foundation
• Local Governments Should Use Performance Audits to Improve Budget Accountability and Performance – Washington Policy Center

Crime, Justice & the Law
• Should Judges Judge?: The Affordable Care Act, Subsidies, and Judicial Engagement – Federalist Society
• Civil Asset Forfeiture Reform Goes Mainstream – The Heritage Foundation
• Kellogg Brown & Root Services v. United States of America – Washington Legal Foundation

Economic and Political Thought
• The Case Against Liberal Compassion – Hillsdale College

Economic Growth
• Declaration of Crowdfunding Independence – Competitive Enterprise Institute
• Economic Freedom of the Arab World: Annual Report 2014 – Fraser Institute
• Go West, Young Adults: The Ten-Year Western Boom in Investment, Jobs, and Incomes – Fraser Institute
• The IMF’s Analysis of the U.S. Economy: Faulty Assumptions and Bad Policy Advice – The Heritage Foundation
• Effects of the Affordable Care Act on Economic Productivity – Hillsdale College
• The Pillars of Reaganomics: A Generation of Wisdom from Arthur Laffer and the Supply-Side Revolutionaries – Pacific Research Institute

Education
• Better Data, Better Decisions: Informing School Choosers to Improve Education Markets – American Enterprise Institute
• Does Better Observation Make Better Teachers? – Education Next
• Fixing Detroit’s Broken School System – Education Next
• Exploring Indiana’s Private Education Sector – Friedman Foundation for Educational Choice
• The 2014 Michigan Public High School Context and Performance Report Card – Mackinac Center for Public Policy
• Filling the Skills Gap: Massachusetts Vocational-Technical Schools and Business Partnerships – Pioneer Institute for Public Policy Research

Welfare
• How Welfare Undermines Marriage and What to Do About It – The Heritage Foundation

Foreign Policy/International Affairs
• A Budget Roadmap for Rebuilding US Military Strength – American Enterprise Institute
• Iran’s Economy of Resistance: Implications for Future Sanctions – American Enterprise Institute
• Pursuing a Freedom Agenda Amidst Rising Global Islamism – The Heritage Foundation

Health Care
• What to Expect With a Republican Majority: Health Care in the 114th Congress – American Action Forum
• Expanding Medicaid Will Hurt Tennessee Families, Lower Income, and Reduce Jobs – Beacon Center of Tennessee
• Beyond Gruber: How HHS Flip-Flopped on Federal Exchange Subsidies – Competitive Enterprise Institute
• Medicare’s SGR: Fixing It the Right Way, Not in a Lame Duck Session – The Heritage Foundation
• How Two States Cut Medicaid and Saved Money – Institute for Policy Innovation
• Improving Long-Term Care in Wisconsin – National Center for Policy Analysis

Immigration
• Why the President Will Go Through with His Threat to Act Unilaterally on Immigration Policy – Center for Immigration Studies

Information Technology
• Internet Traffic as a Basic Measure of Broadband Health – American Enterprise Institute
• Hands Off the Web – Free State Foundation
• The Internet of Things and Wearable Technology: Addressing Privacy and Security Concerns without Derailing Innovation – Mercatus Center

Labor
• Count the Votes at Gerawan! – Capital Research Center
• Examining the Effects of a Minimum Wage on the Labor Market … An Experiment – Texas Public Policy Foundation

Monetary Policy/Financial Regulation
• Bitcoin Taxation: Recommendations to Improve the Understanding and Treatment of Virtual Currency – Federalist Society

National Security
• ISIS, Israel, and Nukes: Iran Faces Crises – American Enterprise Institute

Natural Resources, Energy, Environment, & Science
• States Are Engaging EPA on Clean Power Plan – American Legislative Exchange Council
• The EPA and the Corps’s CWA Interpretive Rule: A Regulatory End Run – The Heritage Foundation
• The Trans-Alaska Pipeline: Lessons for the Keystone XL Pipeline Debate – The Heritage Foundation
• The U.S. Army Corps of Engineers and Environmental Protection Agency’s Proposed Definition of “Waters of the United States” – Texas Public Policy Foundation
• Federal Clean Air Act Preemption of Public Nuisance Claims – Washington Legal Foundation

Regulation & Deregulation
• Reaffirming the Foundations of IP Rights: Copyright and Patent in the Antebellum Era – Free State Foundation
• RegData – Mercatus Center

Transportation/Infrastructure
• The Federal Emergency Management Agency – Cato Institute
• Ridescore 2014; Hired Driver Rules in U.S. Cities – R Street

The President’s immigration action: What’s the deal with the President deciding that immigration law won’t be enforced for about 5 million out of 11.4 million illegal immigrants? Sen. Jeff Sessions (R-Al.), Ramesh Ponnuru, John Malcolm, Jan Ting, Michael Gonzalez, and Derrick Morgan discuss the President’s decision to defer deportation action against illegal immigrants who are parents of citizens or of lawful residents for up to three years:

Making law or exercising discretion? On Thursday, President Obama announced a plan to allow up to five million illegal immigrants who are parents of legal citizens or lawful residents to stay in the country without fear of deportation for up to three years. The plan announced by the President also provides for those immigrants to obtain work permits. Previously the President’s position had been that he could not use executive discretion in this way. In 2011, he told an audience at a townhall meeting:

With respect to the notion that I can just suspend deportations through executive order, that’s just not the case, because there are laws on the books that Congress has passed […] . Congress passes the law. The executive branch’s job is to enforce and implement those laws. And then the judiciary has to interpret the laws.

There are enough laws on the books by Congress that are very clear in terms of how we have to enforce our immigration system that for me to simply through executive order ignore those congressional mandates would not conform with my appropriate role as President.

Based on statements like that, Glenn Kessler who writes the Washington Post’s Fact Checker column, gave President’s an upside-down Pinochio rating for “a clear but unacknowledged ‘flip-flop’ from a previously-held position.” [Washington Post, November 18]

Ilya Shapiro, who favors immigration reform along the lines laid out by the President, sees a problem in the President’s actions:

There comes a time even under statutes that are ambiguous or open-ended that executive discretion ceases to be a lawful execution of the law and becomes a suspension or re-writing of it. It’s very difficult to articulate where that line is, but my view is that President Obama is on the other side of it. He’s set a dangerous precedent for executive action, one in which the president somehow gets more power when Congress isn’t acting (as if gridlock were a bug in our system of checks-and-balances, not a feature).

Accordingly, while the applicable immigration laws give the president discretion that’s quite broad, either (1) this executive action goes beyond even that broad grant of power, or (2) the laws themselves are an unconstitutional delegation of legislative power. After all, Congress could not constitutionally pass a law saying, “The president is now dictator and can make any laws he wishes”—even temporarily or regarding but one area of policy. So if the administration’s defenders are right that President Obama is toeing but not crossing the letter of the law, then that letter is invalid and the president’s actions are still unconstitutional. [Cato Institute, November 21]

So does Ross Douthat:

The White House’s case is straightforward: It has “prosecutorial discretion” in which illegal immigrants it deports, it has precedent-grounded power to protect particular groups from deportation, and it has statutory authority to grant work permits to those protected. Therefore, there can be no legal bar to applying discretion, granting protections and issuing work permits to roughly half the illegal-immigrant population.

This argument’s logic, at once consistent and deliberately obtuse, raises one obvious question: Why stop at half? (Activists are already asking.) After all, under this theory of what counts as faithfully executing the law, all that matters is that somebody, somewhere, is being deported; anyone and everyone else can be allowed to work and stay. So the president could “temporarily” legalize 99.9 percent of illegal immigrants and direct the Border Patrol to hand out work visas to every subsequent border crosser, so long as a few thousand aliens were deported for felonies every year.

The reality is there is no agreed-upon limit to the scope of prosecutorial discretion in immigration law because no president has attempted anything remotely like what Obama is contemplating. In past cases, presidents used the powers he’s invoking to grant work permits to modest, clearly defined populations facing some obvious impediment (war, persecution, natural disaster) to returning home. None of those moves even approached this plan’s scale, none attempted to transform a major public policy debate, and none were deployed as blackmail against a Congress unwilling to work the president’s will. [New York Times, November 15]

Grubergate: If you haven’t followed the story of how the architect of ObamaCare thinks the law was passed because it fooled the American people, you can now catch up in two minutes, thanks to the folks at American Commitment:

Will history remember Grubergate? Maybe “Gruberism,” “the eponymous doctrine first enunciated by MIT economics Professor Jonathan Gruber (1965 – ) that holds that the mass of people in advanced democratic societies are functionally incapable of ascertaining their own interest, and that the public good is accordingly best achieved by a process in which a credentialed elite devises the best policies and then seeks to achieve public support for them by deception and lies” needs its own Wikipedia entry. If so, James Ceaser has nailed it. His suggestion, published at National Review, concludes this way:

There is a final interpretation of the meaning of Gruberism that ignores the official doctrine and focuses instead on the events surrounding its presentation. By this account the essence of Gruberism is associated with the foolishness of its originator, Jonathan Gruber. If Gruberism was to make the inroads that Grubber hoped for, its teachings should only have been revealed in secret. Yet whether from ignorance of the first lessons of politics or from the vanity of soliciting adulation from academic audiences, Gruber publicly spelled out every aspect of the doctrine. The inevitable result was that all of the followers of the doctrine, including the Gruber in chief, were compelled to disown it. [National Review, November 21]

Yet the only reason Gruber had to disown the idea is that a Philadelphia investment adviser got upset about his insurance rates rising and began watching hours and hours of Gruber videos. Thanks to Rich Weinstein, Gruber’s statements are public knowledge and a note about the comments has made its way onto Gruber’s Wikipedia page. So why not give “Gruberism”—which is clearly more important than the man’s biography—its own entry? The term should be preserved as a reminder of the dangerous world view that drives so many elites. [See Howard Kurtz on Weinstein, Washington Post, November 20]

Rational ignorance and mendacious reporting: One more point on GruberGate—the admission by ObamaCare architect Jonathan Gruber that the law was written in a convoluted way to hide its true costs: Aside from what it confirmed were problems with ObamaCare, the incident is a good reminder of why politics isn’t as good at solving problems as markets. Don Boudreaux develops this point:

Precisely because the typical voter is not stupid, the typical voter understands that his or her vote will not determine the outcome of any election. The typical voter, therefore, spends his or her scarce time gathering information about matters over which he or she does exercise meaningful control – for example, studying for the calculus exam to increase the chances of scoring a higher grade, or writing sonnets to a beloved other to increase the chances of scoring – rather than about matters (the outcomes of political elections) over which he or she exercises no meaningful control whatsoever.

Yet the reality of voters’ rational ignorance is one of the chief reasons why public-choice scholars argue that political choices are often less prudent and less sensible than are choices made by people in private markets – and why special-interest groups have a much greater chance of co-opting political processes than they have of co-opting market processes. […]

So Jonathan Gruber simply admits that the very process that people on the left romanticize and celebrate – democratic politics – isn’t what it’s cracked up to be. Of course, libertarians and public-choice scholars say the same. The difference between the Jonathan Grubers of the world and the Russ Robertses and Bryan Caplans of the world is that the former believe that politics is still commendable as long as good, smart people (such as Gruber) are performing deceptions necessary to trick voters into supporting policies that good, smart people somehow divine are best for the masses, while the latter believe that the very need to deceive rationally ignorant (indeed, rationally irrational) voters is itself a major flaw in politics – a flaw that makes politics far less reliable and admirable than competitive, private markets. [CafeHayek, November 13]

Megan McArdle describes the same problem in terms of insider knowledge, a problem that is compounded, she observes, when journalists act as if they are insiders, too:

As insiders begin to use that technical knowledge as the criteria for being admitted to serious conversation, they start losing a lot of important information about what the nonexperts know and are doing. But they don’t know what they don’t know. So they come to see themselves as the embodied will of the whole group. They forget, in other words, that they are insiders; instead, they think of themselves as the brains of the whole organism. If they know something, then It Is Known. If they do not fully communicate what is happening, this is not an exercise of power to their own ends; it is simply an efficiency measure. One major feature of this dynamic is that insiders rapidly begin to use their specialized technical knowledge to make the outsiders more pliable for their own purposes, without ever really being conscious that this is what they are doing, or how self-serving and dangerous it is. […]

That politicians should try to exploit the accounting rules was inevitable; that is what people do with accounting rules. I’m not saying that’s what the rules are for, or that they do no good; I’m just saying that about eight seconds after your rules are made, some bright Johnny will start figuring out a way to game them.

What is not inevitable is that journalists should effectively sanction this by saying it’s no big deal. We don’t have to get elected, after all. And those politicians and policy makers aren’t our bosses; the reading public is. We shouldn’t act like we’re part of the insider clique that decides what other people need to know – no, worse, that decides what other people do know. If we knew this all along and voters didn’t, that doesn’t mean voters don’t have a right to be outraged. It means that we’ve lost track of whose side we’re on. [BloombergView, November 19]

Perhaps more journalists should take a class in public choice economics.

The Obama administration’s story on subsidies in the federal exchanges doesn’t fit together. Returning to one of the other major ObamaCare controversies for a moment, a new timeline on ObamaCare technology development supports the contention that the law was never intended to provide subsidies in states that did not create their own exchanges. It seems the law’s drafters never imagined that a significant number of states would opt out and so didn’t anticipate that state non-participation could threaten the law by making its subsidy scheme null in so much of the country.

That question of whether the federal government can provide subsidies and apply the associated penalties and mandates in non-participating states will be heard by the Supreme Court sometime in 2015 in the case King v. Burwell. The plaintiffs will find comfort in Scot Vorse’s timeline on the development of the technology behind the state exchanges and the federal website Healthcare.gov.

The facts of the timeline seem inconsistent with the view that subsidies were always planned for the exchanges that the federal government would operate in those states that chose not to operate their own.

As Vorse reports, from 2010 into 2011 the Department of Health and Human Services issued numerous guidelines to the states on the technology side of their exchanges that included instructions on creating a tax credit calculator. In February of 2011, the department announced $241 million to states to develop their Exchange IT. And in March, the federal government set up an online system for the states to share technology. Vorse writes: “Although HHS is deeply involved in the process of developing this technology for state exchanges, there is no mention of any involvement, collaboration or sharing of technology with a Federal exchange or HealthCare.gov.”

By mid-2011, HHS knew that there would be a number of states for whom it would have to operate a federal exchange. Yet, Vorse notes: “HHS did not contract to build a tax credit calculator for HealthCare.gov until May 3, 2012—nearly 10 months later.” May 3 was the date on which the department revised its IT contract to include the development of a tax credit calculator in HealthCare.gov. That date was more than a month after the Internal Revenue Service published its rules on the availability of tax credits in federal exchanges. It was also nearly five months after seven states had written to HHS Secretary Kathleen Sebelius asking whether subsidies would be available in states that did not establish their own exchanges.

If the subsidies were always anticipated to operate in the federal exchange as well as the state exchange, why was Healthcare.gov not part of these early efforts to build tax credit calculators? Indeed, why were states given grants to build their own calculators at all instead of just relying on the federal government’s technology?

Other puzzles from the timeline:

Prior to May 23, 2012 – The State of Washington requests more money from HHS to build a tax credit calculator. In the same document it also claims it “intends to use” a HHS-developed tax credit calculator. The statement implies HHS has already developed a tax credit calculator. Why is a state asking for money if it “intends to use” a HHS-developed tax credit calculator?

June 28, 2012 – Nevada also asks for money to build its own tax credit calculator, even though it also “intends to use” the HHS-developed tax credit calculator. Interestingly, both Nevada’s and Washington’s grant requests use the exact same language and punctuation. Why does this contradictory identical language and punctuation suddenly appear in two state grant requests? The most likely answer is that HHS provided the language to both states. The language is consistent with the Obama administration’s shift in interpretation, and builds the case that HHS has always been developing a tax credit calculator. Furthermore, HHS was loath to rescind the grants because it would have demonstrated that its interpretation of the ACA had changed over time. [Emphasis in original. Internal citations omitted.] [Competitive Enterprise Institute, November 20]

Transparency: ObamaCare didn’t hit its enrollment target of 7 million after all, reports Alex Wayne:

The Obama administration said it erroneously calculated the number of people with health coverage under the Affordable Care Act, incorrectly adding 380,000 dental subscribers to raise the total above 7 million.

The accurate number with full health-care plans is 6.7 million as of Oct. 15, a spokesman for the U.S. Department of Health and Human Services confirmed today, saying the U.S. won’t include dental plans in future reports. [Bloomberg, November 20]

Price discrimination can make the Internet work better. To see the problem with President Obama’s promotion of the idea of Network Neutrality, note that it attempts to outlaw practices—namely tiered services—that are normal in most other markets that are highly competitive and serve consumers very well. Richard Epstein takes up this theme:

A quick trip to the Federal Express website, for example, reveals a wide range of “fast and full of options” like “FedEx Priority Overnight and FedEx Standard Overnight.” There is also two- or three-day shipping and Saturday service for those who want it. The different tiers of services are offered, not surprisingly, at different rates. These differential services are available to all customers. It is simply wrong for the President to assume that any system of paid prioritization entrenches established companies at the expense of new entrants, or greedy advertisers at the expense of high-school bloggers.

It is not preordained that only rich or established companies will take advantage of premium services. Perhaps the new entrant will eagerly take advantage of the higher cost broadband service in order to facilitate its dramatic market entrance. Alternatively, if the mass mailings to particular advertisers are not time sensitive, he may send them out in bulk with slow delivery at low prices. All users of broadband services will try to maximize their expected returns by using the right mix of multiple tiers of service.

That same logic will apply to more aggressive policies whereby a given Internet service provider decides that it will block certain content that is available on other networks. Wholly apart from the threat of government intervention, that strategy will provoke a high level of consumer resentment that could lead to customers going elsewhere in droves. So before imposing tough new restrictions, it is better to wait to see how the industry shakes out. The more innovative the market, the less likely these nightmare scenarios are likely to occur.

Unfortunately, the President assumes that the rejection of net neutrality is an insidious form of industrial policy. Thus, he asserts: “We cannot allow Internet service providers (ISPs) to restrict the best access or to pick winners and losers in the online marketplace for services and ideas.”

His statement is bizarre. On the first point, an ISP must make tough business choices whenever it introduces different tiers of services. Considered abstractly, higher rates could drive away some customers, just as inferior services could drive away others. But considered concretely, that is not likely to be the case. Premium services at the top end of the market could easily attract potential purchasers who think that the superior services are well worth the additional price.

At the same time, the lower cost services could lure into the market new customers who are unwilling to pay a high but uniform blended rate. Price discrimination therefore offers serious efficiency gains, which is why AT&T likely will be willing to make more extensive investments if allowed the price flexibility now given to Federal Express. [Free State Foundation, November 21]

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